How the IPO market can grow from the Facebook fiasco

Facebook's highly vaunted IPO was supposed to be a shining moment for American entrepreneurship. Instead, disaster struck: Nasdaq systems couldn't list the stock on time, would-be investors grew angry and impatient, and the actual share price--pegged at $38, thanks to seemingly strong demand--plummeted 20% within two trading days of its debut.

Now investors are suing Facebook and its bankers, alleging that they disclosed information selectively to give preferred clients an unfair advantage. Meanwhile, top U.S. regulators are investigating exactly what Facebook's lead underwriter, Morgan Stanley, shared with clients pre-IPO.

All told, what should have been a triumph for Wall Street ultimately...